Solar Madness: As in Europe, So in Croatia

Since the Government announced the abolition of VAT on photovoltaic and solar equipment, it was expected that, along with the already growing trend of switching to solar energy, demand would explode. The government’s decision was implemented through amendments to the Value Added Tax Act, which regulates the calculation and payment of VAT on the delivery and installation of solar panels, so that from October 1, 2022, VAT is calculated and paid at a rate of zero percent on the delivery and installation of solar panels on private residential buildings, residential spaces, and public and other buildings used for activities of public interest, as well as the delivery and installation of solar panels near such facilities, spaces, and buildings.

Details about which equipment and accompanying services will be covered by this decision are defined by the accompanying regulation, which is under the jurisdiction of the Ministry of Finance, and which everyone is eagerly awaiting before embarking on ‘solar investments’. As stated by the Tax Administration, the Regulation will be published for public consultation before its adoption.

However, the great rush for solar energy has been ongoing since the beginning of the year, even before the abolition of VAT. According to HEP, HEP ODS has recorded a significant increase in interest from citizens since the beginning of the current energy crisis and the global rise in energy and fuel prices. Increased interest from both citizens and companies is noted throughout the European Union.

– The increase in the number of connection requests is also influenced by measures subsidizing the costs of installing solar power plants, which are implemented through public tenders by state institutions and local government units. Given the amendments to the VAT Act, under which VAT is calculated and paid at a rate of zero percent on the delivery and installation of solar panels, its effects are expected to be felt more strongly in the upcoming period, HEP emphasizes.

The number of requests in 2022 has increased multiple times compared to the previous year, with an increase of over 600 percent in the first six months compared to the same period in 2021.

– Such an increase in the volume of work could not have been planned by HEP ODS, which has affected the deadlines for resolving received connection requests, exceeding the legal deadline of 15 days. We note that deadlines can sometimes be extended due to incomplete documentation submitted with the connection request. Despite the significant pressure, HEP ODS strives to resolve all user requests as quickly as possible. Already in the third quarter of 2022, the number of issued confirmations for permanent operation more than doubled compared to the previous quarter, and intensive work is underway to expedite the resolution of remaining unresolved cases and shorten the timelines for future requests, HEP notes.

More Incentives Needed

Aljoša Pleić, the general director of Acciona Energia, welcomes the government’s decision and believes that the non-calculation of VAT is an important item as it relates to the entire package for solar installation, not just the panels as initially thought.

– This is an excellent step forward, as any relief should be welcomed. In my opinion, we should look at another type of benefit and integrate everything into a whole, where those investing in renewable energy sources or energy efficiency must have some benefits in tax returns, perhaps discounts on utility services, or if it concerns an entrepreneur, have real advantages or additional points in public tenders, which should be ‘green’. There is a very large space for further incentives, and I believe that both the legislator at the national and local levels will apply this in the near future, Pleić emphasizes.

Vladimir Sabo, director of the Customer Solutions Retail Department at E.ON Croatia, says that his company also expects an increased number of requests due to the abolition of VAT, but believes that the main trigger would be shortening the time from signing the contract to installation and commissioning of the power plant.

– The prerequisites for this are a more agile approach from HEP ODS and better segmentation of the process. E.ON’s operational excellence is something that customers have recognized and that differentiates us from the competition. The current number of requests is coming at an equal pace, regardless of the price cap on electricity for both categories of customers, Sabo notes.

He agrees with Pleić’s thesis that if the state’s energy strategy is a transition to renewable energy sources, which it is, then tax relief for other products and services could be considered. He cited products such as heat pumps, electric vehicle chargers, electric vehicles themselves, and everything else that can contribute to a faster energy transition as examples.

Return on Investment

There are still a whole range of obstacles that hinder this transition, from the slow issuance of location and construction permits (the procedures for obtaining them can take more than a year, although the legal deadline is 30 days) to the slow adoption of spatial plans and their non-compliance, which is a result of very different approaches to spatial planning among counties.

However, despite still numerous legal and administrative challenges, solar energy currently offers exceptionally attractive rates of return on invested capital, usually within a period of three to five years, depending on the size of the constructed power plant. For manufacturing companies whose electricity bills amount to millions of kuna, a ten percent annual savings has a significant impact on operating costs. When we wrote about solar installation three months ago, the increase in demand was 300 percent compared to the previous year, and in the next three months, or in six months, it doubled to 600 percent.

Citizens, entrepreneurs, craftsmen, and family farms inquire daily at all possible institutions about what steps they need to take and what options are available to reduce their overhead costs. The largest increase in interest is among smaller companies, for smaller power plants of 100 kWp, and for projects based on the ‘turnkey’ principle. Large companies started investing in such projects significantly earlier because they have enough internal knowledge.

Partners Matej Stipeljković and Matija Sučić, owners of the company MS2 Energo, which produces solar equipment, started their solar energy business two years ago and confirmed visible changes in demand over the past year.

– Until a few months ago, legal entities invested in solar power plants mainly with incentives or guaranteed purchase prices for electricity. Today, this is not the case: for an average entrepreneur, a solar power plant pays off in three to four years if all invested funds are theirs, Stipeljković claims, adding that the production capacities of solar equipment are filled until January 2023. His company is mainly contacted by small and medium-sized enterprises, and the highest demand is for on-grid solar power plants for self-consumption. Stipeljković previously explained to Lider the main steps entrepreneurs must take when entering an investment:

– First, the company needs to obtain an ‘energy card’ and a ’15-minute consumption curve’ from the local HEP. After we receive these documents, we provide approximate prices for design, equipment, and execution. First, we create a conceptual design that we send to HEP to obtain consent for connecting the power plant to the grid. HEP usually issues consent and connection conditions within 30 days, and only by reviewing the received documents can we provide a final offer for the main project, execution, and necessary measurements for commissioning.

The project documentation itself is significantly less expensive than the equipment and execution and usually costs around 30 lipa per watt of the planned installed capacity of the power plant. Investing in power plants pays off in less than 10 years for anyone who has an electricity price and associated additional costs (grid fees, surcharges, etc.) in a high tariff greater than 90 lipa/kWh. Anyone with a lower price than that means they still have a valid contract under the old price list and will soon have up to 350 percent higher electricity prices. Therefore, it is worth installing a power plant for every entrepreneur, some immediately, as their electricity prices have already risen, and some will only rise soon, Stipeljković emphasized.

For 600 Thousand Roofs

According to some estimates, Croatia has the potential to install photovoltaics on at least 600 thousand roofs, and it is currently among the last in Europe in terms of the number of installations. At the same time, in terms of obstacles to the development of renewable energy projects, Croatia ranks high third at the EU level.

Although the ‘solar market’ is developing quite rapidly, following high demand, one of the main obstacles to faster development of all other services related to renewable energy is the lack of workforce, especially energy engineers, technicians, and electricians, many of whom have emigrated from Croatia, and we are now feeling shortages that are difficult to replace.